What Is a Layer 2 Network?

A Layer 2 network is a separate protocol built on top of a base decentralized network that handles some activity outside that base layer, while still relying on the base network for security, settlement, or resolving disputes. A common way to do this is grouping many transactions together and submitting the combined result back to the base network as a single entry — but that's one implementation among several, not the definition of a Layer 2.

Why the base network needs help

A base network can only fit a limited number of transactions into each block, and blocks are produced on a roughly fixed schedule — every node still checks each transaction in a block, which is what makes the network reliable, but it also caps how many transactions can go through in a given stretch of time. As more people use the network, that fixed capacity gets shared among more transactions, and each one waits longer or costs more to include. A Layer 2 doesn't change the base network's rules — it reduces how often the base network needs to be touched at all.

What settling actually means

Transactions on a Layer 2 happen on its own separate protocol, tracked by its own agreed-upon rules. Settling is the moment that activity gets reconciled with the base network — the Layer 2 submits proof of the net result, and the base network records that outcome as a single transaction rather than every individual one that produced it. From that point, the base network's record reflects the combined result, not the full history of how it was reached.

What comes with batching, where it's used

For Layer 2 designs that batch transactions before settlement, that's what allows them to move faster and more cheaply than the base network alone. In exchange, verifying any single transaction usually means relying on the Layer 2's own rules and record-keeping until settlement occurs, rather than the base network checking it directly from the start. Other Layer 2 designs achieve the same base-layer reliance through different mechanisms, with different tradeoffs.

For the broader set of networks and tools this fits into, see Ecosystem, and for watching transaction activity directly, see Network Monitor.